diff --git a/daemon/exec.go b/daemon/exec.go
index b535cf851b..e7352e81d8 100644
--- a/daemon/exec.go
+++ b/daemon/exec.go
@@ -17,7 +17,9 @@ import (
 	"github.com/docker/docker/libcontainerd"
 	"github.com/docker/docker/pkg/pools"
 	"github.com/docker/docker/pkg/signal"
+	"github.com/docker/docker/pkg/system"
 	"github.com/docker/docker/pkg/term"
+	"github.com/docker/docker/utils"
 )
 
 // Seconds to wait after sending TERM before trying KILL
@@ -121,6 +123,13 @@ func (d *Daemon) ContainerExecCreate(name string, config *types.ExecConfig) (str
 	execConfig.Tty = config.Tty
 	execConfig.Privileged = config.Privileged
 	execConfig.User = config.User
+	execConfig.Env = []string{
+		"PATH=" + system.DefaultPathEnv,
+	}
+	if config.Tty {
+		execConfig.Env = append(execConfig.Env, "TERM=xterm")
+	}
+	execConfig.Env = utils.ReplaceOrAppendEnvValues(execConfig.Env, container.Config.Env)
 	if len(execConfig.User) == 0 {
 		execConfig.User = container.Config.User
 	}
@@ -195,6 +204,7 @@ func (d *Daemon) ContainerExecStart(ctx context.Context, name string, stdin io.R
 
 	p := libcontainerd.Process{
 		Args:     append([]string{ec.Entrypoint}, ec.Args...),
+		Env:      ec.Env,
 		Terminal: ec.Tty,
 	}
 
diff --git a/daemon/exec/exec.go b/daemon/exec/exec.go
index bbeb1c16a6..5f4e7e73a1 100644
--- a/daemon/exec/exec.go
+++ b/daemon/exec/exec.go
@@ -27,6 +27,7 @@ type Config struct {
 	Tty         bool
 	Privileged  bool
 	User        string
+	Env         []string
 }
 
 // NewConfig initializes the a new exec configuration
diff --git a/integration-cli/docker_cli_exec_unix_test.go b/integration-cli/docker_cli_exec_unix_test.go
index 42db4091dd..5f691196f1 100644
--- a/integration-cli/docker_cli_exec_unix_test.go
+++ b/integration-cli/docker_cli_exec_unix_test.go
@@ -68,3 +68,26 @@ func (s *DockerSuite) TestExecTTY(c *check.C) {
 	c.Assert(err, checker.IsNil)
 	c.Assert(bytes.Contains(buf, []byte("hello")), checker.Equals, true, check.Commentf(string(buf[:read])))
 }
+
+// Test the the TERM env var is set when -t is provided on exec
+func (s *DockerSuite) TestExecWithTERM(c *check.C) {
+	testRequires(c, DaemonIsLinux, SameHostDaemon)
+	out, _ := dockerCmd(c, "run", "-id", "busybox", "/bin/cat")
+	contID := strings.TrimSpace(out)
+	cmd := exec.Command(dockerBinary, "exec", "-t", contID, "sh", "-c", "if [ -z $TERM ]; then exit 1; else exit 0; fi")
+	if err := cmd.Run(); err != nil {
+		c.Assert(err, checker.IsNil)
+	}
+}
+
+// Test that the TERM env var is not set on exec when -t is not provided, even if it was set
+// on run
+func (s *DockerSuite) TestExecWithNoTERM(c *check.C) {
+	testRequires(c, DaemonIsLinux, SameHostDaemon)
+	out, _ := dockerCmd(c, "run", "-itd", "busybox", "/bin/cat")
+	contID := strings.TrimSpace(out)
+	cmd := exec.Command(dockerBinary, "exec", contID, "sh", "-c", "if [ -z $TERM ]; then exit 0; else exit 1; fi")
+	if err := cmd.Run(); err != nil {
+		c.Assert(err, checker.IsNil)
+	}
+}